NOTE: Except where specific examples are used for illustration, most of the following applies in some degree to boards of all kinds-corporate, community, church, educational, governmental and those of other entities.

Disclaimer: The following are offered as general observations only, not as legal opinions. Statutory law and entity policy on fiduciary duty and board discipline vary widely. Some of the comments here may not be applicable, or may be wrong in some situations, depending on the regulatory and organizational environment. When in doubt consult competent legal counsel. See the further disclaimer at the end.

Principles--boards as a whole

An organization’s board of directors occupies a unique and delicate position at the interface between an organization’s stakeholders and the operational entity. On the one hand, the board represents stakeholders to the operating executive of the entity. On the other, the board is a public face of the enterprise. In both directions, a board is a single entity speaking with one voice. The principal tasks of an organizations' board are to:

• govern the board itself, including formulating a binding code of conduct for its members, and a disciplinary mechanism for rebuking, correcting, or dismissing those who engage in misconduct,
• formulate the entity's mission, values and goals,
• hire the president (this officer may also be termed CEO or COO, but is the principal manager and face of the entity,)
• hold that president accountable for pursuing the mission and achieving the goals within the values framework,
• hold the organization accountable for its legal and/or financial obligations.

A well-governed board maintains a thin interface. This means:

• it defines and provides the entity's governance principles,
• it never becomes directly involved in day-to-day operational management,
• a single designated individual (normally the president), speaks for the organization both internally and externally,
• this person speaks and acts solely and consistently as specifically directed by the board through its policies and motions, and never otherwise,
• at the president's sole discretion, other staff may be invited to board meetings for informational purposes (not to receive direction), but the board has no access to staff (even to the president) outside board meetings
• no member of the board ever speaks individually, whether outward to stakeholders or inward to staff apart from, the express direction of the board,
• the board does not by-pass or overrule the president on an operational decision.
• in Carver governance models, these lines are carefully and sharply drawn to make it clear that the board has only a single employee to guide and hold accountable via a series of executive limitations. The president dwells in a glass-bottomed bowl through which the board does not reach. Much of Carver governance is about establishing mechanisms to maintain the separation between directing and managing, and ensuring no one tries to do both.

Principles--board members

Under Common Law and various specific statutes, board members owe a primary duty (called a fiduciary duty or duty in trust) to the organization. This means:

• they are required at all times to act in the best interests of the entity they have agreed to serve,
• they must put the organization's interests ahead of their own personal political, and other ones,
• they may never use their position as a board member to further their other interests or for any personal purpose whatever,
• they may never engage in an activity on their own behalf or that of some other entity that would be in conflict with or harm the entity on whose board they serve,
• they are constrained to act upon and represent only agreed-upon policy according to the organization's established policies procedures,
• they must perform their duties with due diligence in accord with the requirements of common and statutory law and the specific codes of conduct and ethics for the organization,
• the usual legal test for whether their actions are in accord with fiduciary duty is whether they are what a reasonable person would do in the circumstances (that is, they are not all required to be lawyers),
• this duty must be exercised to some degree in the public interest, as most entities are incorporated under or regulated by statute law, [Where this is not the case, such as with unincorporated community clubs or churches, there may still be common law provisions touching on proper behaviour of board members.]
• thus, this duty cannot be narrowly solely construed as an obligation to maximize the entity’s stock value, market share, or reputation at the expense of all other considerations.
• Neither is it confined to financial or legal obligations.

An individual board member therefore has a distinct individual voice on policy only at board meetings, is otherwise severely constrained by the corporate policy framework, and may convey only the consensus will of organizational policy to stakeholders or staff, and in both cases only as specifically directed by the board. It is a serious (and probably actionable) offense for a board member to bypass the board and/or the president to deal directly with a management issue or, worse still, a staff issue. This implies that board members have to be carefully chosen in order to ensure that they:

• are of sound character, good reputation, even temper, a clean record, and proven wisdom,
• are not given to fractiousness,
• bring a variety of expertise and diversity of views to the table,
• place personal, business, and other special interests behind those of the organization,
• understand that any personal, political, or other business agenda they bring to the table takes second place to agreed upon policy,
• know how to reach decisions by tactfully working with others toward consensus,
• can govern by and will speak to stakeholders and staff solely from board policy consensus (i.e. never from a personal one),
• are in particular very clear on the distinction between directing and managing and the consequent prohibition on them becoming personally involved with operations or staff, whether on corporate or other issues.

This further implies that the larger the organization, the more important it is that board members have a wealth of experience at putting these principles into action, and that the board members and organization both commit to ongoing education for the board to ensure it operates at the highest level of professionalism. Sadly, in the twenty-first century it is no longer possible to assume that either appropriate behaviour at board or other meetings, or that an understanding of generally accepted governance practise is common knowledge.

Principles--Conflicts of Interest

All real or potential conflicts of interest must be disclosed upon becoming a board member, or upon any of the relevant circulstances changing.

Corporate counsel and/or the board itself must then determine whether the disclosed conflict is material, that is, of sufficient import to require the member not take part in discussions that relate to the conflicted situation (a business, legal, or other relationship with an entity in which the member has an interest, or a situation that involves the member). A conflict with another such entity is material if the board member:

• owns a beneficial interest in the other entity valued at more than five per cent (this may be set lower in some cases)
• is a fiduciary, a close relation to, or has business or personal dealings with a fiduciary of the other entity
• has been involved in a legal or personal issue with the other company,
• is under a non-disclosure agreementwith the other entity that might bear on the matter at hand.

Any and all personal disputes or disagreements with management, staff, or other board members of the entity the member directs are automatically material conflicts of interest and must be disclosed at once to the rest of the board. (A duty to report one's own misconduct.)

In all discussions relating to a mmatter where a director has a material conflict, (s)he must absent himself or herself from meeting during the discussion. The minutes should note the time of departure and re-entry of the member. These are excusable failures to carry out fiduciary duty, but if they become frequent or material in themselves, the director must resign and be replaced.

Note that the conflict need not be financial to be material.

Principles--violations of fiduciary duty

The fiduciary obligation is a very flexible concept—one that places a bar against any abuse of power. It is therefore not possible to elaborate every possible violation that constitutes a breach of duty. However, board misconduct falls into the following general categories:

• use of the position for personal profit, gain, or to promote a personal interest, belief, or other agenda, whether this is specifically at the expense of other stakeholders or not,
• use of the position for the benefit of some other entity in which the director has an interest,
• use of the board position as a means of pursuing a personal vendetta, disagreement or other agenda against particular stakeholders,
• the showing of favoritism among stakeholders,
• interference with the management function of the president or with a specific staff member.

Principles--board organization

As part of its responsibility to govern itself, a board should have:

• a chair and possibly a vice-chair. NOTE: As the board serves the entity, so the chair serves the board. The chair is far more severely constrained by organizational structure and policy than other board members, as (s)he must be diligent to maintain neutrality and not compromise the office by participating in any disputes. A chair should avoid speaking on issues altogether, or at least until it becomes clear that the issue is not contentious,
• a standing governance committee responsible for determining what other committees are required, what is the due process for disciplinary action for breaches of fiduciary duty or other misconduct by board members, and what changes may need to be made from time to time for the organization’s broader governance.
• Its fiduciary duty traditionally has a major focus on the the entity’s financial affairs, so it needs to have a standing audit or finance committee. This committee hires any external auditor completely independently of staff input, and works directly with said auditor to carry out due diligence on the organization's finances. NOTE: In carrying out its duties, the audit/finance committee may become privy to confidential information that can only be shared with the rest of the board on a need-to know basis, so being on the audit committee of a board imposes an additional confidentiality and fiduciary burden.
• such other standing committees as may be appropriate to the entity's market sector or mission,
• (possibly) an executive committee consisting of the board's chair and vice-chair, together with the chairs of the other standing committees,
• such ad hoc committees as may be needed to handle emergent issues. These committees cease to exist with each new board term (normally annual) but may be reappointed if the new board wishes,
• a calendar of corporate meetings, and a means to provide meeting notice of meetings and agendas to meeting attendees and stakeholders, as applicable (this usually does not apply to unincorporated organizations).

These and other committees of the board have added responsibility in their fiduciary duty to drill deeper than the reports management provides, satisfying themselves that those summaries are reliable, correct, and in policy conformance before passing them to the board, and thence to regulatory agencies and stakeholders.

Special Case 1--unincorporated associations

Some entities, such as community clubs, special interest groups, and churches, are not incorporated as legal entities (a society) and so are not covered by statutory law regarding such things as: meetings, notice of meetings, disciplinary processes, certain government reports and fiduciary limitations. They are still covered by labour and taxation laws. This means:

• they are governed solely by their own constitution and bylaws,
• their governance processes may be more relaxed because written notice of meetings and motions may not be required, making some procedures much less formal,
• BUTthey may have little or no recourse to legal action (except a civil suit for the value of damages) if a director misbehaves—unless said misconduct involves some direct interaction with a staff member, which will almost certaibnly result in a labour board instigating a harassment suit. Thus, even an unincorporated association should maintain anti-harassment measures, if it does not want the association to be named as a co-defendent.

Special Case 2--the president as a board member

Having the president be an ex officio member of the governing board is a nearly universal practice. This is done to enhance communication between management and the board—a very good idea. However, this carries its risks, for the president's very presense at the table blurs the line between direction and management. In such cases:

• there should be no more than one such ex officio board member,
• for anything other than a club, community association, or small non-profit, the president should be non-voting,
• the president should show restraint in taking strong stances on issues, or (s)he may have to live with an opposing decision.
• the president of course must interact with individual employees, diretly or indirectly, so what is unethical for another director in this instance is the duty of the president (and delegates) alone among directors. Nor can the rest of the board overrule the president in a personnel decision without removing the president from office.

Specific Problems

Often the best way to elaborate board governance principles is to consider common scenarios where a (possible) violation of fiduciary duty takes place, i.e. there is a question of director misconduct. Here are a number of these with rough answers. Keep in mind that detailed dispositions may in many cases require legal counsel for proper disposal.

Scenario 1: A director is elected on and/or comes to act upon a politicized or personal agenda.

Comment 1: This is not in itself a problem nor does it imply misconduct if pursued solely at board meetings within reason. However, a director has a sole fiduciary duty to the organization, and this trumps all previous or other associations, promises, client interests, special intrest groups, and agendas. So, there is a potential for conflict of interest here, but pressing for specific issues at board meetings is not itself misconduct unless it becomes obstructive. If a director continually demands that old decisions be revisited or consumes an inordinate amount of time repeating arguments already advanced, the chair needs to step in and impose rules of order to expedite business. In an extreme case of obstruction, a board usually has the power (by due process) to warn the offender, even to remove the person from the board. A better remedy is to ensure that board members are well selected in the first place, but in situations involving elections, this may not be possible. Indeed, those elected on a perceived platform of change or at the behest of a special interest faction of stakeholders may be the least willing to defer to the consensus at a board meeting, and the most likely to trigger governance nightmares. Political parties often learn the pitfalls of running and winning on politicized agendas when they find that they have to govern for everyone, and cannot keep all the promises made to special interest groups. Whether they are right or wrong in their views is another matter.

Scenario 2: A director wishes to oppose a board decision.

Comment 2: (S)he can do so only at board meetings. Directors are constrained far more than other stakeholders in the enterprise. They are not free to speak in opposition to corporate policy outside board meetings, or to so act under any circumstances. Even if done privately, speaking against corporate policy or a board decision elsewhere than at a board meeting is a clear violation of fiduciary duty and grounds for removal from the board. If the action is public, dismissal should be an automatic consequence. In government, the same principle is called cabinet solidarity, and a cabinet member who publicly opposes cabinet decisions always does so at the cost of the position. Likewise a caucus member of a political party who criticizes the leader is routinely dismissed from caucus and party membership. If the organization’s reputation and business suffers as a result of such an action, there may be a legal remedy for director malpractice. Directors running for re-election are at a disadvantage here compared to newcomers seeking a seat, because they are bound by existing policy and cannot directly oppose it in their campaigns. Neither can they use confidential board information in those campaigns.

NOTE: There is no such thing as an "opposition" to direction or management. Once a board decision is taken, all directors must support it, and they have no other voice. They have no direct voice in management.

Scenario 3: A director attempts to pressure a staff member to take or cease some action, or demands that a staff member be dismissed.

Comment 3: A member cannot speak outside the board’s single voice channel of communication, especially not to intervene operationally through meeting with a staff member outside the controlled venue of a duly convened board meeting. No board member, not even the chair, has the authority even to initiate a meeting with a staff member, unless specifically directed to do so on behalf of the whole board, and even this would be extremely improper, as the proper channel is through the president, not involving the board. Indeed, it is outrageous misconduct for a director, much less the board as a whole, to by-pass its president and become directly involved in a personnel matter, unless it was simultaneously planning to dismiss its president.

The remedy depends on the severity of the misconduct. On a first offense, if the harm done is in the board’s view immaterial, and the staff member is not actually contacted, an apology to the board and president, with a signed but undated resignation letter kept on file may suffice. A second offense requires immediate removal from the board.

If any form of negative contact with a staff member is made, the bigger issue (than fiduciary misconduct) is that a staff member so interfered with by a person acting on their, perceived power to do so would almost certainly be entitled to a presumption of workplace harassment. Since a person who abuses a position of trust is an extremely high risk to re-offend, no second chance can be afforded. Civil and/or criminal harassment charges will surely apply under a variety of statutes. Legal counsel should be consulted in such cases.

NOTE: Much that was tolerated in the workplace a decade ago is no longer. Today the organization itself could also face prosecution if it failed to have in place safeguards to prevent workplace bullying or other improper behaviour at any level. Moreover, the legal presumption tends to be that if the one on the receiving end of the behaviour believes certain actions constitute harassment, then they automatically do. The mere mention of the word by the target of the behaviour must today always trigger at least an internal investigation, and there may be statutory reporting obligations as well.

Scenario 4: A director or other officer wishes to sit on the board of other organizations.

Comment 4: In most cases this is not only not a problem, it is a good thing. Officers and directors need a broad perspective on governance, and holding multiple directorships is an excellent way to acquire that experience. There are potential issues, however. Two organizations that share more than one director (the exact number may be legislated) are said to be interlocking, and this can attract attention of a variety of government agencies, including anti-trust enforcers. If the entities are also either business partners, in a client relationship, or competitors, there is obvious potential for conflict of interest. Legal counsel should be consulted before undertaking multiple directorships to ensure there are no material conflicts. If any subsequently develop the director must resign one of the two positions.

Scenario 5: Two relatives/friends/business partners or associates wish to sit on the same board.

Comment 5: For small societies, one such pair may be acceptable (e.g. brothers on a church or condo board), but usually even these must usually be reported to the appropriate government regulators, where applicable). For closely held companies, the majority owner may be permitted to name several board members. However, this is at least inadvisable. In many of the relevant regulatory environments, all or nearly all directors must be pairwise independent, that is, at arms length in every respect.

Scenario 6: A director reveals confidential board information outside the board meeting.

Comment 6: If no material damage ensues, a reprimand and undated resignation kept on file may suffice. If the damage is material, the director should be dismissed, and may also face civil and criminal charges for the violation of duty, plus a recovery of damages.

Scenario 7: A former director/member/other stakeholder opposes a decision or policy of the organization.

Comment 7: If conducted within legal bounds, there are no governance issues here. Common legal pitfalls for an especially determined protestor may however include: (i) any use of confidential information belonging to the organization, whether known only to the board or otherwise, such as member names, addresses, email addresses, customer lists/data, vendor information, salaries, prices, policies under discussion but not decided, products under development but not announced, trade secrets or formulas, proprietary information, procedures or techniques (such as computer programs), legal or financial knowledge, and so on, (ii) the specific use of mail or email addresses to spam stakeholders or customers, (iii) any behaviour that can be interpreted as harassment, slander, misrepresentation, or libel, (iv) any action that hinders the staff from performing their duties, or prevents the members/stakeholders from the normal and lawful use of the organization’s services and/or facilities, (v) any action that causes material damage to the entity’s reputation, sales, membership, or stock (unit) value.

Each of these categories of action could attract a civil suit or charges under a variety of statutes, depending on the jurisdiction in which the alleged offense is committed. The illicit use of confidential data to spam people may attract especially heavy penalties in some jurisdictions. Note that email may pass through numerous servers physically located in a variety of jurisdictions, each with its own laws concerning the use of data and the generation of spam, and each potentially subjecting the perpetrator to separate prosecution. Moreover, a person who is a former director would be assumed to have privileged information and is at risk of a presumption of being more culpable than some other current or former stakeholder because directors are always held to a higher standard of behaviour than other stakeholders.

SIDE NOTE 1: The courts take a dim view of the illicit posession and use of confidential data bases:
Prison for stealing a database

SIDE NOTE 2: At some point in the process of sending out spam it becomes to the advantage of an ISP to do more than simply cancel the spammer's mail account, but also to make an example of the person by seeking a fine: Huge spam fine at $100 per address per message sets the standard.

Scenario 8: (modifies some of the above) A director takes unilateral action with an external agency to report an illegal act.

Comment 8: The organization should have in place a whistleblower policy that expressly states that such an action will not produce any negative consequences for the person so reporting, whether director or staff. In many jurisdictions, there is a requirement to so report, and failure to do so can attract charges. Of course, the person so doing must engage due diligence to ensure the matter is correctly reported. A false allegation may itself attract charges. This reporting is a violation of fiduciary duty, but in this case because the one duty istrumped by a higher one.

Scenario 9: A board takes an action that benefits the majority stakeholders at the expense of other stakeholders who have minority shares or voting rights (or vice-versa).

Answer: These can be very murky situations, and are likely to end up in court, so the action must be backed by competent and multiple legal authority and be thoroughly documented.

Scenario 10: The board chair wishes to speak to an issue at a board meeting.

Comment 10: On routine matters, an informal approach may be acceptable for a small organization such as a church, a community club, a housing coop, or a small business. On controversial matters, in more formal situations, or where detailed minutes are a matter of public record, the chair should yield to another member (with the meeting’s consent) for the entire duration of discussion on that issue. The point here is that while board members are constrained to act only within existing policy, the chair is further constrained by the necessity to both remain impartial and to appear to be so. Conflict, even intelligent discussion, can never be effectively managed once the chair takes sides. A church makes a good, if not universally applicable illustration. There, the deacons are, by definition, literally servants of the church, assistants and facilitators for the church leaders (elders/pastors, or the equivalent). Their chair is in turn their servant. No deacon has individual authority, only the board as a whole (and in that context, it must act within existing governance policy and may be subject to the will of the members as well, depending on the governance model.)

Scenario 11: One or more members/stakeholders challenges the authority of the board on a decision.

Comment 11: In a corporate context, the only way to succeed in such a challenge once the board reaches a decision and expresses an unwillingness to revisit it, is to elect new directors, which may not be easy. In a more member-driven organization, the board must first decide whether the matter is of material substance and therefore one of confidence. If the latter, it must inform the members prior to any vote at a general or special meeting that overturning their decision will remove them from office and force new elections. This does not constitute undue pressure to force stakeholders to agree with them. On the contrary, failure to disclose that the board considers a vote as a confidence action, then unexpectedly resigning would itself be misconduct. In the British parliamentary system, government conducts itself under such a constraint at all times, and a non-confidence vote always forces an election. NOTE: A board decision on a material matter such as (but not limited to) the entity's budget, a hiring decision, a disciplinary matter, the mission statement, one involving a legal matter, or other issue touching on the Board's ability to govern, is always a confidence issue if challenged or required to be confirmed by stakeholders for some other reason.

Scenario 12a: A member of a board or other meeting makes an accusation of lying or bias (or other derogatory remark, particularly if touching on motives) against another individual, whether present or not.

Comment 12a: As in any meeting held under rules of order, such language is unparliamentary. Moreover, because such accusations speak to motive as well as fact, they are nearly impossible to prove, so should not be entertained outside a court of law. The matter must be brought to the chair's attention, who must deal with it by requiring the remark to be withdrawn. If the offender refuses, the instruction is repeated. If it is refused a second and third time, the offender must be immediately evicted from the meeting and may not return to it or a subsequent session of the same body until the remark is formally (for the official record) withdrawn.

Scenario 12b: A member of a board makes some other accusation against another board member or a staff member of the organization.

Comment 12b: If the accusation is a matter of some kind of illegal activity, the matter should be turned over to the appropriate authorities. Otherwise, the gold standard for taking action requires two witnesses. That is, accusations involving private conversations where only the two parties were present, or that attribute motive (impossible to verify) cannot be entertained. Once the issue of admissibility is settled, the matter passes to the President if it involves another staff member, and to the board's own internal disciplinary process otherwise.

Scenario 13: A member of a board or a candidate for election to a board either is or becomes involved in a legal action to which the organization is party.

Comment 13: No matter how slight the connection to the legal action, this disqualifies the person from board membership, as it makes it impossible to carry out fiduciary duty.

Scenario 14: A member of a board, acting without the board's specific direction, writes a letter identifying the organizational connection, either in the signature or by using organizational lettehead.

Comment 14: If the contents of the letter are in accord with entity policy, and the only fault was that the board member was not specifically directed to write it, a simple rebuke and reminder of duty will do. If the letter was in opposition to organizational policy or sent for some personal, political, or other purpose not related or only indirectly related to the organization, this constitutes an serious breech of fiduciary duty. The member should be removed from the board, and the board chair be directed to write the recipients of the original letter an apology and disclaimer of the rogue actions. This might be sufficient to deter legal action against the entity by the receivers of the letter, though the offending board member would still be personally liable for any harm. The entity may also have cause for legal action against the offender for misuse of its trademarks.

Scenario 15a: A member of a board becomes aware of a business opportunity in the sphere of interest of the entity, and takes it for himself/herself.

Comment 15a: Fiduciary duty obliges a board member or officer of the entity to give the organization the right of first refusal on any such opportunity. The organization almost certainly has legal recourse to recover the lost opportunity from the board member.

Scenario 15b: A board is considering a business relationship with or a legal action against another entity in which one of its members has an interest.

Comment 15b: If the interest is material, the member must absent him/herself from all discussions on the point. The time of leaving and re-entering the meeting must be noted in the minutes.

Scenario 16: A member of a board or other insider manipulates the shares of the entity or uses inside information to determine buy and sell times so as to make a personal profit.

Comment 16: This is fraud. Such cases are normally heard by quasi-judicial regulatory bodies or the courts. The penalties include some or all of jail, fines, a ban on trading shares, and/or a ban on being a director or an officer of a company. In addition any parties who suffer material loss because of the fraud may launch a civil suit for recovery.

NOTE: This material is dynamic, and may be added to as additional scenarios come to mind or new issues come to the author’s attention.

Further Disclaimer: All the above scenarios are summary composites of multiple situations that have come to the author's attention in a variety of ways, in some cases even from novels or the daily news. None are intended to depict or describe persons or events from the author’s personal experience or consulting practise. He regards all as commonly occurring in everyday organizational life and has seen or heard the like more than a few times. The reader should not assume that any of these scenarios represents or even resembles any specific situation.